Posted by Brad Foster| Tuesday, 27 February, 2018 |
Comments Off on How Much Is Your Energy Broker’s Commission?

It’s Not A Commission, It’s a Hidden Upcharge

You’ve been approached by an energy broker and told you that they can get you the best energy deal out there. You’re intrigued. You would like help comparing energy suppliers. But, you’re smart. You ask the energy broker a responsible question, “How much will it cost my company to use your services?” Most likely, the response will be, “there is no cost to you.” But, you know better than that. You intuitively say to yourself, “The energy broker isn’t doing this for free. They are making money somehow.” So, you ask the next sensible question. “How do you make your money?” Most likely, the energy broker’s response will be, “My fee is paid by the supplier.” “Makes sense”, you say to yourself, and conclude, “If there is no cost to me, and their fee is paid by the supplier, then the supplier must be awarding the broker a commission.”

That’s exactly what the energy broker wants you to believe. Problem is, it’s the wrong conclusion. You’ve been duped.

Energy Broker Compensation Comes Out of Your Pocket, Not the Energy Supplier’s

Your energy broker is compensated by you and only you. It comes out of your company’s pocket, and yours’ alone. You fund it. You pay for it. You just don’t know it. Despite the inference, energy suppliers don’t forfeit one dime to compensate energy brokers. There is no commission payment.

Energy brokers fund their compensation by embedding undisclosed upcharges into the natural gas or electricity supply prices that they provide to the energy consumers that work with them. To say it differently, the prices that the energy broker provide are not the suppliers’ actual prices. The actual prices are lower. This means that there is a cost to you. Its invisible, but it’s there, and it’s not small, but likely significant – way more than you would ever imagine.

How This is Orchestrated

The energy broker instructs the energy supplier to embedded the upcharge into the price billed by the energy supplier. Consequently, the energy supplier becomes the energy broker’s billing agent. After receiving the payment of their invoice from the energy consumer, the energy supplier redistributes the amount of the collected upcharge to the energy broker. Instead of the energy broker billing you directly for their services, they use the energy supplier to bill you. This is how energy brokers self-justify the statement “My fee is paid by the supplier.” Technically, the energy broker receives a check from the energy supplier, but the energy consumer is under the impression that the amount of this check comes out of the energy supplier’s pocket, not their own, because they been duped into assuming that energy suppliers pay commissions to energy brokers.

The statement, “My fee is paid by the supplier” is a half-truth.

You Pay Significantly More for Energy – Not Less

These hidden markups are so high that you could have negotiated significantly better deals had you worked directly with energy suppliers. You could have spent $100,000 last year on natural gas, but you spent $125,000, the result of a $25,000 hidden upcharge. Your yearly electricity spend could have been $500,000, but it was $600,000 instead, stemming from a $100,000 hidden energy broker upcharge. Upcharges can be as high as 25% of the energy supply price. I helped a client discover that their annual natural gas spend could have been $500,000, but spent $650,000 because of $150,000 hidden upcharge.

The Benefit of Competition Is More Than Lost

Don’t get me wrong – competition between suppliers works. To consistently get the best energy supply deal, you must create competition. Consumers aren’t dumb – they know this. They engage energy brokers because they believe that energy brokers can procure energy better than they can do themselves. But what they don’t know is that they aren’t getting a net benefit. They are in a net-loss situation because the amount of the hidden upcharges more-than-offset the value that energy brokers can provide.

For example, the maximum benefit of supplier competition on your natural gas supply deal is valued at $10,000. But, the energy broker’s hidden upcharge is $25,000 per year. You lose, by $15,000. There’s $60,000 on the table that you can maximize through supplier competition on your electricity supply deal. But the energy broker’s hidden upcharge is $100,000 per year. You lose again – by $40,000.

If you found out your electricity or natural gas broker had $10,000 per year’s-worth of upcharges built into your energy prices, would you care? What if it was $100,000 per year, would you care then? What if it was more than that? Would the owner of your company care? Moreover, do you really know what the net benefit is? How could you know when you don’t know the amount of the hidden upcharge?

The Right Question

The question isn’t “how much is the broker’s commission?” The question really is, “How much is the hidden upcharge that the energy broker embedded into the energy price?” Once you know that, you can calculate how much you are compensating the energy broker – and how much your energy supply prices have been inflated by your energy broker.